New Zealand’s Telecom NZ is fully privatised. A report today suggests that it may be forced into the type of separation that we would want to see for Telstra. The report also suggests that this would be easier to achieve in New Zealand rather than Australia because the government has no stake in the company.
It seems to me that there is a grain of truth to this statement but only if holding on to the local copper loop is a means of leveraging power into other segments. That is, it has to be the case that separation would reduce the entity’s value.
But if we are to believe Telstra, it makes no money off its local loop (being strangled by regulation and all). In this case, separating it and privatising the rest would get the government more money than keeping Telstra together. So what is it? Is Telstra using its local loop monopoly to profitably leverage its market power into other segments or is the government being silly not separating out the loss-making parts of Telstra prior to privatisation?
Of course, even if separation would reduce profits, then if there is fear that the government might do a NZ and separate it later on, investors would build that in. So, separating it now cannot reduce the government’s privatisation take at all and so the Quiggin proposal makes absolute sense.